NEW DELHI: France’s Dassault Aviation and another French company, MBDA, had proposed to meet 30% of their compensation obligation in the ₹59,000 crore deal for 36 Rafale jets by offering cutting-edge technology to India’s Defense Research and Development Organization (DRDO), but failed to do so, said a report by India’s Comptroller and Auditor General (CAG) released at Parliament on Wednesday.
DRDO was to “obtain technical assistance for the indigenous development of the engine (Kaveri) for the light combat aircraft (LCA). To date, the vendor has not confirmed the transfer of this technology, “said a press release on the CAG report.
The CAG casts a shadow over the supervisory mechanisms currently in place to enforce such offset contracts. A press release on the report said that an audit was underway after a decade of implementing the compensation policy to assess the extent to which its objectives were met. France is considered by India as a close strategic partner. Five of the 36 Rafale jets made by Dassault Aviation ordered by India in 2016 arrived in India in July and some of them are deployed in Ladakh, where India and China are involved in a major military confrontation. The compensation contract at the Rafale operation is valued at approximately ₹30,000 crore. Two people familiar with the matter separately said the critical issue was the implementation of the compensation contract and not how it was done.
According to the CAG report, Dassault Aviation and MBDA, which manufactures the MICA air-to-air missile system that the Indian ordered Rafale to be equipped with, are not the only foreign suppliers that have not met their compensation obligations.
“In many cases, it was found that foreign suppliers made various compensation commitments to qualify for the main supply contract, but later on, they were not serious about meeting these commitments,” the CAG report said.
“From 2005 to March 2018, 46 compensation contracts were signed with foreign suppliers, valuing Rs. 66,427 crore. Under these contracts, as of December 2018, Rs. Suppliers should have disbursed Rs 19,223 crore in compensation. However, the compensations that they claimed to have been canceled by them were only Rs. Rs 11,396 crore, which was only 59% of the commitment, “the CAG report said.
“Only 48% (Rs. 5,457 crore) of these compensation claims submitted by providers were accepted by the Ministry. The rest were largely rejected for not complying with the contractual conditions and the Defense Contracting Procedure. The remaining compensation commitments of approximately Rs. Rs 55 billion is expected to be completed in 2024, that is, in the next six years. The rate at which foreign suppliers have been meeting their compensation commitments was approximately Rs. 1300 crore per year. Faced with this situation, fulfilling the commitment of Rs. 55 billion rupees by suppliers in the next six years remains a big challenge, “the report said.
India had drawn up a compensation policy in 2005 to ensure that a worthwhile foreign supplier of defense hardware ₹Rs 300 million were acquired, at least 30% of the purchase value invested, in India. This was in the context of the fact that India is one of the top three buyers of military hardware. The foreign supplier’s investment would be made in defense and aerospace. The foreign supplier could do so through foreign direct investment, offering free technology transfer to Indian companies or by purchasing products and components manufactured by Indian companies. To meet their compensation obligations, foreign suppliers had to select an Indian company as a partner.
Rafale’s contract had attracted much attention after the opposition led by the Congress Party accused the government of corruption in the deal. In December 2018, the Supreme Court ruled that it found no evidence of irregularities in the government’s decision-making process and rejected requests for investigation into the Rafale agreement.
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